Notes-Wk5 - Section Notes Externalities and Government Interventions February 7 8 2011 1 Consumer and Producer Surplus Question 7 Chapter 6

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Section Notes Externalities and Government Interventions 1 Consumer and Producer Surplus Question 7, Chapter 6 Consumer Surplus: The diference between the consumer’s beneFt ±or a unit over the cost o± purchasing the unit (CS per unit = MB P ) Producer Surplus: The diference between the market value ±or a unit sold and the cost to the Frm o± producing the unit (PS per unit = P MC ) Total Economic Surplus: The sum o± the surplus gained by the actors in the economy (TS=CS+PS) Question 11, Chapter 6 1
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2 Efficiency Allocative: MC to society for the last unit produced = MB to society for the last unit consumed Distributive: MB of the last unit consumed is equal for all consumers Productive: MC of the last unit produced is equal for all producers Efficiency means all and only units for which MB MC are traded total economic surplus cannot be larger Efficiency does not imply equity. What is the closest notion to equity in economics?
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This note was uploaded on 02/21/2011 for the course ECONOMICS 101 taught by Professor Gerson during the Winter '11 term at University of Michigan.

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Notes-Wk5 - Section Notes Externalities and Government Interventions February 7 8 2011 1 Consumer and Producer Surplus Question 7 Chapter 6

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